Natural Resources Committee on Oct. 21st, 2024

[The Chair, Liberal, George Chahal]

I call this meeting to order.

Welcome to meeting number 110 of the House of Commons Standing Committee on Natural Resources.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Thursday, June 6, 2024, the committee is resuming its study of the Trans Mountain pipeline expansion.

Today's meeting is taking place in a hybrid format.

I would like to remind participants of the following points.

Please wait until I recognize you by name before speaking. All comments should be addressed through the chair. Members, please raise your hand if you wish to speak, whether participating in person or via Zoom. The clerk and I will manage the speaking order the best we can.

Now, I would like to welcome the witnesses who are with us today.

From the International Union of Operating Engineers, we have Patrick Campbell, Canadian regional director; from Pipe Line Contractors Association of Canada, we have Kevin O'Donnell, executive director; and from Trans Mountain Corporation, we have Mark Maki, chief executive officer.

Mr. Maki will have to leave by 12:30; that's for your awareness, colleagues.

You'll be given up to five minutes for your opening statements. After that, we will proceed to our rounds of questioning. I use these cards. Yellow is a 30-second warning, and the red card means time is up. I will try not to cut you off mid-sentence.

We'll now begin with our opening statements.

For the first five minutes, we'll go to Mr. Patrick Campbell.

Go ahead, sir. The floor is yours.

[Patrick Campbell, Canadian Regional Director, International Union of Operating Engineers]

Good morning.

My name is Patrick Campbell. I'm the Canadian regional director of the International Union of Operating Engineers. It's an honour to present here today before the committee.

Prior to being the Canadian regional director, I was the Canadian pipeline director for the IUOE for nearly a decade.

The IUOE represents the heavy equipment operators and mechanics, who play a critical role in unionized pipeline construction in Canada. Any piece of heavy equipment, large or small, on unionized pipeline projects is operated and maintained by our members across Canada.

The Trans Mountain expansion project is 980 kilometres in length. This 36-inch pipeline spans from Strathcona County, Alberta to Burnaby, British Columbia.

When you consider the terrain and highly technical nature, this project had no shortage of technical challenges throughout construction. From the rigours of the Canadian wilderness to the challenges of urban pipelining, as a project the complexities were immense. The project had an archeological component to it of a scale never before seen in Canada.

Make no mistake, the successful completion of this project is a Canadian engineering marvel, constructed through the toughest pipeline terrain by Canadians for Canadians.

Place on top of these technical challenges the impacts of events beyond the control of project management. Regulatory delays pushed the construction timeline of the project into the busiest pipeline construction window in Canadian history. This project was forced to compete for contractors, subcontractors, equipment, suppliers and skilled labour with similar pipeline megaprojects, for instance, the Coastal GasLink project, which was 690 kilometres of 48-inch pipeline; the natural gas transmission expansion program, which was taking place in B.C. and Alberta at the same time; and several mainline pipeline projects in Ontario, not to mention LNG Canada.

On top of technical and construction market pressures, add in the impacts of the COVID-19 pandemic, which gripped the globe and created challenges the project management team had never seen before in ensuring that employees could safely continue to build the project.

In 2021, we saw the atmospheric rivers in B.C., which caused flooding and mudslides in the region. Washouts exposed the original line 1, forcing it to shut down for close to a month. This shutdown brought to bear how vital this pipeline infrastructure is to British Columbians. The flooding caused the Coldwater River to re-route, destroying much of the already constructed right-of-way on spread 5A. This caused a three-month delay in construction.

This accurately sets out those elements of the project that were beyond the control of project management and contributed significantly to the cost escalation of the project.

I would now like to focus on an element of the project that was well within the control of the original project proponent, Kinder Morgan Canada: the labour procurement model. Despite the fact that the four pipeline unions, together with our Canadian membership and our PLCAC contractors, have constructed over 90% of any B or CER pipelines in Canada, and despite our having just completed 100% of the Enbridge line 3 project, spanning over 1,000 kilometres, ahead of schedule, the original project proponent, Kinder Morgan Canada, set out to construct the Trans Mountain expansion project with no Canadian PLCAC contractors and no Canadian unionized pipeline construction labour.

This approach was in stark contrast to the Enbridge labour procurement model, which de-risked the entire line 3 by building their project 100% union with a project labour agreement. This ensured labour continuity for their entire line 3 pipeline replacement project.

Eventually, out of necessity, the Trans Mountain project proponent engaged our contractors and members in order to complete the project, and PLCAC contractors and our members constructed spreads 1, 4B, 6 and 7A, representing four of the nine construction spreads on the project.

The PLCAC four trades, now late to the project, developed a PLA to cover the work on these four spreads, with terms and conditions less than those being paid on the CGL and the NGTL expansion projects, creating labour uncertainty.

Based on the reduced union rates, with the first union shovel hitting the ground on the project in June 2020, the reduced union rates contained in the PLA were escalated by 2% in 2021and 2% in 2022. Those rates have been held since May 1, 2022, with our members not having seen an increase to their compensation package on this project since, despite many members still performing final cleanup to return the pipeline right-of-way to the same condition they found it in.

The labour procurement model that was instituted on this project well before the intervention of the federal government was ill conceived from the outset and, we would argue, presented yet another significant costing challenge for the project. However, it was far from the only challenge this project faced.

Despite all of these significant challenges, a world-class piece of pipeline infrastructure has been constructed to the highest standards, allowing Canadian energy to access new markets.

I am happy to answer any questions you may have regarding the unionized labour component of this project.

[The Chair, Liberal, George Chahal]

Thank you for your opening statement.

I now will go to Kevin O'Donnell from the Pipe Line Contractors Association of Canada.

You have five minutes.

[Kevin O'Donnell, Executive Director, Pipe Line Contractors Association of Canada]

Thank you, Mr. Chair.

Good day, committee members.

My name is Kevin O'Donnell, and I am the executive director of the Pipe Line Contractors Association of Canada. I have the honour of serving tens of thousands of Canadian unionized pipeline workers as well as the innovative Canadian pipeline construction companies that build our future.

Despite what has often been a convenient way to unjustly attack one of our most important national assets and the workers therein, I am attending today as a champion of Canada's energy workers and our constructors.

I sit before you today as a proud pipeline professional for over 30 years. I am proud of Canada's energy workers and of their ingenuity, determination and expertise. I'm proud that they, every working day, battle the elements, often for prolonged periods of time away from friends and family. They employ their expertise. They build an energy infrastructure that powers our incredible way of life here in Canada.

I sit before you today proud of Canada's natural resource sector. Since the 1950s, Canada's pipeline infrastructure has transported millions of barrels of oil safely, contributing hundreds of millions of dollars annually to Canada's economy and creating tens of thousands of sustainable union jobs. These jobs carry wholesome family health and welfare coverage, defined pensions, excellent wages and high commitments to safety and continuous training.

Further, Canada's pipeline industry and, more specifically, the members of the PLCAC have been at the forefront of indigenous reconciliation for years. We are the front lines. While conferences in large cities do exchange and develop very important thoughts and promises, and I attend them regularly, we have delivered.

In fact, in the last seven years, our member contractors alone have collectively invested over $3.3 billion directly into indigenous businesses and communities. This includes direct hire and training, joint ventures, supply chain purchases and community projects, as well as charitable initiatives. The overlay of this is that we have delivered sustainable methods for generational wealth, shared ownership of pipeline-related businesses and shared stewardship of protecting our environment.

Committee members, I believe it is obvious that the world needs energy, and that's a fact. That's a fact that isn't going to change any time soon. I believe that Canada, the jurisdiction with the highest safety and environmental standards, with shared partnership with indigenous communities and the best human rights and workplace safety regimes, should regain its role as a worldwide energy superpower.

Let's be sure, the world is waiting for us. We are leaders. We are a cold weather nation that has flourished with ingenuity, generations of hard work and a balanced approach to natural resource utilization. Now is the time to follow through on that responsibility.

However, as a result of Canada's inability to get projects approved in an efficient manner, creating unpredictability in Canada's marketplace, the world is forced to buy energy from other nations with substandard environmental and social responsibility performance. That can and should change. We have a duty to get our safe and abundant product to market, and, bar none, the safest way is to do that with Canadian-made pipelines.

Honourable members, I do not believe that we should have ended up here today, but I do believe that now this is part of a necessary process. The Trans Mountain pipeline should never have landed in a position of government intervention, but we are here to ensure that the conditions are course corrected and that we regain our efficiency. The Trans Mountain pipeline has far surpassed the original cost estimates. I'm sure there's been significant testimony and research exchanged, and I hope this will serve us all well in the future.

I offer my personal summary of the key causes. Let me call them the four Cs. The first is COVID. We all know what a dramatic effect it had on the world market, specifically energy markets, and the ability to get projects completed. The second one is commodity pricing and inflation—inflation spurred on by the Russian invasion of Ukraine. Coastal gas is the third C. Again, there is lots of documentation of the constraint on supply of labour and resources. I think the last and most important factor was the cadence, the cadence of pipeline building. Traditional pipelines are built in a continuous linear fashion, where we can exploit our decades of expertise and create efficiencies. That simply was not the reality for the TMEP construction. The permit delays and ever-changing regulations and policies, as well as the burdens of reactionary requirements, all led to unprecedented production inefficiencies.

All of these and others were the result of bad timing. In hindsight, most, if not all, of these would not have occurred if the construction phase had a permitting process that worked properly.

As a result of these hearings and learnings, we should now recreate the conditions to enable the private sector to unleash the innovation and ingenuity of Canadian pipeline workers. I would submit the primary factor is policy efficiency and certainty.

I look forward to your questions as we strive so that our association and our craft workers help ensure our industry does not find itself in this situation in the future.

Thank you for your time.

[The Chair, Liberal, George Chahal]

Thank you for your opening statement.

We'll now go to Mark Maki, from the Trans Mountain Corporation.

The floor is yours. Please go ahead.

[Mark Maki, Chief Executive Officer, Trans Mountain Corporation]

Thank you, Mr. Chairman and committee members, for the invitation to speak today about our Trans Mountain expansion project.

Today, I represent the employees and contractors of Trans Mountain, as well as the 35,000 Canadians who worked on the project over the last decade.

The original Trans Mountain pipeline, line 1, along with the expansion project, comprises one of the most important, nation-building pieces of infrastructure in Canada. The pipeline was built to conform to the high standards of Canada. While appropriate, those standards at times were difficult.

When the Trans Mountain project was first proposed, there were three fundamental things we were trying to accomplish. The first was to provide greater pipeline capacity out of the producing region in western Canada. The second was to provide enhanced access to markets for Canadian production. The third was to increase the price realized by Canadians for their crude oil.

Let me move to the performance of the system since the expansion began its operation in May. In the five months since we began operation in May, the pipeline has performed very well. We're very happy with it, and it is meeting the three objectives I just talked about.

The system's nominal capacity has increased from 300,000 barrels a day to 890,000 barrels a day. The system is performing very consistently. We expect volumes to increase here in the fourth quarter, and more importantly, to increase over the next couple of years in stages. The system will be full, we think, by 2028.

So far, the markets that are being accessed by Canadian oil are as follows: the west coast of the United States, Korea, India, Japan and China. As a reminder, Trans Mountain is the only sovereign pipeline route to the Pacific Rim and the markets that are attached to it.

As a reminder as well, 80% of the pipeline's capacity is contracted under long-term contracts. In most instances, they are approaching 20 years and undertaken by some of the best companies in Canada and other global players.

Over my nearly 40-year career in the pipeline space, Canada has sold its oil into the markets at a discount. This has been a substantial transfer of wealth from Canada to other countries, especially the United States. With the start-up of the expansion, the discount on Canadian crude oil has improved. When you look at the fourth-quarter differential now versus what it has been historically and what it would normally be, it's about $10 a barrel better. That's a substantial increase in wealth for Canada—greater tax revenue, greater royalties—and it helps all levels of government.

I also want to highlight the benefit of Trans Mountain in terms of the construction jobs. My colleagues on either side have talked a little about this already. We prioritized hiring Canadian resources wherever possible.

Over its duration, 35,000 people worked on this project. About 10% of those were indigenous—3,500 people. Much of the construction work was undertaken by either indigenous companies or indigenous partnerships for about 20% of the contract value, or just north of $6 billion.

We also took great care with respect to the execution of this project, especially as it relates to the indigenous heritage resources that were encountered during construction. In total, our engagement involved over 140 nations or indigenous groups. We're very proud of that.

We facilitated the investment of more than $150 million of capital in the Western Canada Marine Response Corporation, hereafter called WCMRC, which resulted in six new bases being developed, 43 new vessels, new equipment and more than 100 emergency responders basically being added to WCMRC's resources. What this means is that it halved the response time to an incident and doubled the resources available to respond to any incident in the harbour. That benefits every ship that transits, not just oil tankers—container ships, cargo ships, cruise ships, etc.

I'll switch gears. There have been comments about writedowns in value and toll levels in these hearings. I suspect we'll get into that in the Q and A. In my time in the pipeline sector, there's one thing that has really stuck with me, and that is the importance of being both a disciplined buyer and a disciplined seller. When the time is right, Canada can sell. The outcome that they should expect is the recovery of the taxpayer's capital. That's the only thing the Trans Mountain leadership team is interested in—that the taxpayer gets back their value.

Briefly, I want to talk about the company's ESG commitments. We are a believer in the net-zero target by 2050. Trans Mountain will work to achieve that outcome.

In closing, I want to comment on Trans Mountain again. Trans Mountain increases the access to world markets for responsibly produced Canadian oil at a competitive toll. We do it in a way that puts safety, the environment and the public at the forefront. This project was worth the cost, and it will continue to demonstrate its benefits to Canadians for decades to come.

We appreciate the opportunity to speak to this group today and welcome the questions.

Thank you, Mr. Chairman.

[The Chair, Liberal, George Chahal]

Thank you for your opening statements, and now we will begin with our first round of questioning.

We will begin with Mr. Jeremy Patzer, for six minutes.

Mr. Patzer, the floor is yours.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Thank you very much, Chair, and thank you very much, witnesses, for coming.

Mr. O'Donnell, I want to start with you. You mentioned in your opening remarks the $3.3 billion that has directly contributed to indigenous businesses and communities.

I'm just wondering if you could just spend about 30 seconds expanding on that—maybe about a minute on what those investments mean for communities, what those joint ventures mean and how you have done that on your own without government intervention.

[Kevin O'Donnell]

I'll try to be quick, but it is a big story. I'm very proud of the number, and I'm very confident in the number.

I was CFO of a pipeline company for many years. I was responsible for accounting for $1 billion of that, so I'm very confident in that $3.3 billion that we amalgamated from all of our direct regular members.

What does it mean? They're longevity jobs. They're generational jobs. Those are house-buying jobs. Those are car- and truck-buying jobs. Those are joint ventures that have real and sustained livelihood as long as our energy sector continues on the path of stability.

Those can be measured very easily in the communities we've gone through, the change in wealth, the change in perception of wealth, and the change in perception of ownership and participation.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Thank you for that.

On the stability bit, you mentioned you had your four Cs, and one of them was cadence. You talked about changing. I think it was changing regulations and permit requirements.

I'm just wondering if you could elaborate and expand on the uncertainty that you and your members faced in that regard.

[Kevin O'Donnell]

One quick example would be ground disturbance. Ground disturbance plans would be traditionally submitted on a weekly basis on Trans Mountain. It was changed to a daily basis, so there was not only the fact that you had to take time with your crews and take time with your supervision to develop and build, but it also led to greater administration and time consumption of resources.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

As a pipeline professional, do you think that was necessary?

[Kevin O'Donnell]

I would have to say that we've been building pipelines for 70 years in Canada. I think we've done it very well. I think there was a bit of overburden, or overkill.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Yes. I think you can look at the fact that the first pipeline was built in 1951. It was built well, and it's been operating well ever since and safely, without issues, so...yes.

I'm just wondering if you could talk a bit more about some of the regulatory uncertainty you faced over time in this project here. I'm just wondering if you could point to any specifics that were changed. I know you mentioned the ground disturbance one. I'm wondering if you could talk about any other regulatory uncertainties that you faced along the way.

[Kevin O'Donnell]

I think it was the acquisition of permits and permitting. We have 1,000-plus kilometres that you have to traverse, and normally that's all ceded to you before you start construction, but the way this one was handled, there were 20 kilometre gaps and 15 kilometre gaps where you just couldn't gain efficiency, so those permits were not acquired on a timely basis. I think everyone knows that one.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Yes. Then you also talked about the construction of it. Normally you build it as you go. The building process was different.

I'm just wondering if you can talk about what that meant for trying to get things completed in a timely fashion, having to build it in an irregular manner.

[Kevin O'Donnell]

Let's be honest. When you're building pipelines through the flatlands, it's straight A to C with some zigzag in the middle, and you're going to come up against anomalies for sure, but in this one there was very little opportunity to build continuity.

Again, that comes from lack of permit planning, lack of access to construct. Frankly, there was, all the way through the project to the end, ever-increasing demand for greater safety; there were greater environmental concerns, and all of those were learnings. There were learnings along the way, and I'm sure that there were benefits to it, but there certainly was a large cost to it as well.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Yes. On that cost bit right there, when we look at the cost overruns that this project had, the private sector could and would have built this project. I'm just wondering if you could talk a bit about the expertise that exists in the private sector and how they could have built this project without the government having to get involved.

[Kevin O'Donnell]

That's a big question, a good question. Thank you.

Look at Canadian pipeliners, constructors, workers and craft unions. They're experts in what they do, and they get better every year. I'm certain that in my 35-plus years of pipelining, we didn't become poor pipeliners the day this was awarded.

We should have been getting better at pipelining. Unfortunately, given the circumstances as outlined, we didn't get a chance to exploit that.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Yes. That's really unfortunate.

About the Canadian labour force.... The workers were all Canadian, I assume. Is that correct?

[Kevin O'Donnell]

I'm going to say that the majority were. We definitely know that several international corporations came in and brought management and supervision. For the craft workers, I would say the vast majority had to be Canadians.

Certain expertise had to be imported for steep slope, which was always the plan. Steep slope is not something that we do regularly in Canada, but recent expertise was brought in for that, for sure.

[Jeremy Patzer, Conservative, Cypress Hills—Grasslands, SK]

Thank you.

[The Chair, Liberal, George Chahal]

Thank you.

We'll now go to our next six-minute round and Mr. Schiefke.

The floor is yours, sir.

[Peter Schiefke, Liberal, Vaudreuil—Soulanges, QC]

Thank you very much, Chair.

As well, I want to extend a warm welcome to our witnesses for being here.

I'll start my line of questioning with you, Mr. Maki. It's with regard to the cost overruns.

Obviously it's a question that a lot of Canadians have, including many in my community of Vaudreuil—Soulanges. You mentioned it a bit in your opening remarks, but can you perhaps expand on extreme weather events—the flooding that took place, for example—and COVID? How did those contribute? Is there or was there a calculation already done about how much that actually contributed to the cost overruns?

[Mark Maki]

Sure. In very broad strokes, Mr. Schiefke and committee, what we call “exogenous factors”, which are things like COVID, the atmospheric river and other events effectively external, really resulted in about $9 billion of cost—big picture on the overall project—just to give you a sense. About a third of the overrun is really attributable to those types of factors.

Broadly, I would say a couple of other things, though, with respect to cost. This is really from a reflection on a long career in this space. When they looked at the original Trans Mountain pipeline expansion proposal and what it was supposed to cost, and looked at comparable projects that were proposed around the same time—specifically, Enbridge's northern gateway project—they were in the same time zone for cost.

What you saw over time as the projects were originally conceived, until, say, the termination of northern gateway, was that the project costs moved in lockstep. If you look at other projects across time, you see a substantial increase in costs, whether it was the Alberta clipper project, which is a Canadian-U.S. project by Enbridge, or the line 3 replacement, which followed about 10 years later, there was a substantial increase in cost.

A lot of it had to do with how things are done now relative to earlier points in time. This has been commented on by both gentlemen, either in their comments or in the Q and A. That is a reality of part of the reason the cost has increased over time.